Damron Auto Parts, Inc. - Page 8

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From its incorporation until its purchase by LKQ, petitioner
consistently and rapidly increased in fair market value (FMV).
Under the guidance and management of Mr. Damron, a corporation
valued at $200,000 in 1984 grew to $12,500,000 in 1998.
Respondent’s expert opined that FMV increased from $3,755,510 in
1993 to $6,267,846 in 1995.1 Moreover, respondent’s expert found
that the maximum compensation (i.e., including bonus) should be
$786,000, $1,145,000, and $1,144,000, relating to the respective
years in issue (i.e., 68, 133, and 121 percent more than
respondent allowed, respectively).
In essence, Mr. Damron rendered extensive and intensive
services to petitioner that, according to petitioner’s expert,
resulted in a compound rate of return, from 1984 to 1998, of more
than 39 percent per year. Respondent’s expert believed that
investors in a firm like petitioner would expect a 14.3-percent
return on their investment. We conclude that an independent
1In an addendum submitted at trial, respondent’s expert
explained that when he prepared his original report he did not
know petitioner had been sold in 1998 for $12,500,000. The
expert stated: “Given the subsequent price paid for DAP [i.e.,
petitioner], our original returns analysis underestimated the
value of DAP and, thus, overestimated the compensation available
to Mr. Damron between 1993 and 1995.” Consequently, the expert
presented an alternative analysis indicating that FMV increased
from $7,357,619 in 1993 to $9,667,382 in 1995. The expert added,
however, that “The analysis based on the subsequent sale of DAP
does not alter the conclusions in our original report”.
Therefore, we do not accord great weight to the expert’s
alternative analysis and accept his original conclusion that FMV
increased 67, rather than 31, percent from 1993 to 1995.